LONDON (ShareCast) - (Sharecast News) - Video games technical and creative services provider Keywords Studios updated the market on its trading for the year ended 31 December on Thursday, saying it expected to report full-year revenues of around €326m (£274.46m), representing a 30% increase year-on-year.
The AIM-traded firm said that on an organic basis, group revenues were expected to increase by around 15%, compared to 10.1% in the prior year.

It said that performance was driven primarily by the "particularly strong" organic growth of its two largest service lines - functional testing and game development - continuing to build on a "very strong" performance in the first half.

Some of its service lines felt the effects of the slowing development cycle of the current generation of games consoles, the board explained, with others already starting to benefit from the new development cycle associated with the upcoming releases of the new Xbox and PlayStation later in 2020.

Adjusted profit before tax was expected to be about €41m, representing an increase of around 8% over the prior year.

Keywords said adjusted EBITDA, excluding the impact of IFRS 16, was forecast to be approximately €49.5m, which would be 13% higher than in 2018.

The group said its profit performance reflected the strong revenue growth, partially offset by continued investment in the growth of the group, the effect of incorporating a number of early stage technology businesses acquired in 2018 and an under-performing, fixed price contract in an acquired business, which was finalised at the "very end" of the year.

As strong demand continued in the second half, the firm said it invested further in its facilities, recruitment, training, IT, security and human resources to both meet that growth opportunity and to support the business in future periods, which introduced some short term operational inefficiency as well as an increase in overhead cost.

The group said its investment during the year included "substantial expansion" of its facilities in Montreal, Katowice, Manila, Brighton, Mexico City, Tokyo, Sao Paulo and New Delhi, as well as establishing a new game development studio in Leamington Spa.

Those expansions incurred start-up costs, including for the space and staff, as it fitted out the facilities and built and trained the production and support teams ahead of becoming operational.

During the period, Keywords made eight acquisitions which the board said further strengthened the breadth of value-added services it was able to offer its global video games clients, particularly in game development and marketing services, as well as bringing "proprietary, cutting edge" machine translation and crowd sourcing technology to its localisation offering.

Cash invested in acquisitions totalled around €28m, which consisted of €13m net of cash acquired in respect of those companies acquired during the year, and €15m in settlement of deferred consideration payments for earlier acquisitions that became due in the period.

Net debt at 31 December was expected to be about €18m, up from €9m at 30 June and €0.4m at the end of 2018.

"In what was a relatively light year for the video games industry against a backdrop of the tail end of the current generation of video games consoles from Microsoft and Sony, the group has delivered strong growth, particularly from our two largest divisions, functional testing and game development services," said chief executive officer Andrew Day.

"We have also continued to invest in expanding our business, including in new and enlarged facilities, improved technology, strengthened management and additional functional support.

"Whilst this investment held back margins in 2019, it will enable us to continue to deliver high levels of growth as we position ourselves as the 'go to' global services platform for video games in a market which is seeing an accelerating trend towards outsourcing."

Day said that looking forward, the company expected the launch of a new generation of gaming consoles and the further development of new streaming platforms, in addition to the structural drivers of growth across the video games market as a whole and the ongoing trend towards external development, to drive continued strong demand for its services through 2020 and beyond.

"The full benefit of this new generation of consoles is expected to increase over the medium term.

"We will continue to invest in the Group to take full advantage of these growth opportunities with margins expected to increase incrementally in 2020 towards our historic norms as we leverage these costs over a growing revenue base."

Day said the company's recently-enlarged banking facility positioned it well to capitalise on that "clear opportunity" to take a leading share of the increasingly outsourced video games services market, both organically and via acquisitions, as it further enhanced shareholder value.

"We fully expect to make a number of selective acquisitions as we continue to build our global video games services platform and we are managing a strong acquisition pipeline as we enter 2020."

Keywords Studios said it would release its full-year results for the 12 months ended 31 December on 31 March.

At 1624 GMT, shares in Keywords Studios were down 7.74% at 1,264p.

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